Question

On August 31, 2018, Harvey and Ling, who file a joint return and live in Charleston, South Carolina, sell their personal residence, which they have owned and lived in for 10 years. The realized gain of $356,200 was excluded under § 121. They purchased another personal residence in Charleston for $569,920 on September 1, 2018. However, in 2019, Harvey's employer transfers him to Houston, Texas. The couple sells the Charleston home on February 28, 2019, and purchases a new home in Houston. The realized gain on the second sale is $320,580.

What is Harvey and Ling's recognized gain on the second sale? $195,580

Answer 1

To calculate the recognized gain on the second sale, we subtract the basis of the second home from the realized gain.

Step-by-step explanation:

In 2018, Harvey and Ling sold their personal residence in Charleston, SC for a realized gain of $356,200, which was excluded under § 121. They purchased another personal residence in Charleston for $569,920 in September 2018. However, in 2019, Harvey's employer transferred him to Houston, Texas. The couple sold the Charleston home again on February 28, 2019, and purchased a new home in Houston. The realized gain on the second sale was $320,580. Now, to calculate the recognized gain on the second sale, we subtract the basis of the second home from the realized gain.

The basis of the second home is the purchase price of $569,920. By subtracting this from the realized gain of $320,580, we get $249,340 as the recognized gain on the second sale.